Recovery Lending in Africa

London: A report released today by DFID, World Vision UK and VisionFund International has revealed that an innovative market-based approach was central in building resilience to the El Nino climate shock that impacted East Africa throughout 2016 and early 2017. These findings are critical as climate change continues to impact the world’s most vulnerable communities.

The project evaluation has revealed that microfinance loans were central to enabling families to reduce the use of negative coping strategies such as taking children out of school, reducing food consumption and sending family members away for labour in order to sustain their livelihoods.

This project supported 14,500 families, with 72% of women borrowers, in rural areas of Kenya, Malawi and Zambia dealing with the severe effects of droughts and floods caused by last year’s very strong El Nino weather pattern. Funds helped clients to avoid extreme poverty by quickly re-establishing their farming businesses and diversifying income to help bridge the gap between planting seasons.

Using loans on average of little more than £100, the project prevented thousands of families from falling into extreme poverty because of droughts and floods. Funded by the Department for International Development (DFID) using an innovative returnable grant of £2m, the Recovery Lending project was launched in February 2016 after growing evidence predicted strong weather patterns would have a devastating effect for the 2015/16 agricultural seasons in East and Southern Africa.

Increasingly poor communities rely on microfinance to fund their farming operations and sustain the lives of their families. Studies have shown that the supply of microfinance reduces sharply after disasters. This negatively impacts livelihoods, food production and the economic health of rural communities. The results of VisionFund’s work have proven that maintaining the supply of credit benefits these families, communities and the microfinance institutions making the loans.

VisionFund identified eight areas of three countries to support with a recovery lending response:

Project Reach

Recovery Lending is a tool that was first formalised by VisionFund in response to Typhoon Haiyan in the Philippines in 2013.

In the past, finance institutions have pulled back from regions impacted by natural disaster, leaving aid organisations to provide essential sustenance for incomes to continue. This is the exact situation where enterprising families most need financial services to help them rebuild their lives for the longer term.

As the microfinance arm of International NGO, World Vision, VisionFund provides holistic and sustainable support to enterprising rural households, with a particular focus on women. Over 72% of these “recovery” loans were made to women borrowers.

Stewart McCulloch, Global Insurance Director at VisionFund, commented on the project: “Because of DFID’s help we were able to provide 14,500 clients with loans, impacting 87,000 beneficiaries. These funds have now been returned to DFID and can be utilised in new projects, changing even more lives in vulnerable communities around the world.

“Recovery Lending has the potential to be self-sustaining, complementary to other disaster recovery interventions, and scalable to other countries. Along with our project partners, we are optimistic about the potential that Recovery Lending has to change the way the international community responds to people impacted by weather-related events.”

World Vision UK is buoyed by the inclusion of Recovery Lending in its work aiding support for vulnerable communities. Tim Pilkington, CEO of World Vision UK, said, "This approach adds a new dimension to the rebuilding of communities following natural disasters. It shows particular promise in response to slow onset climate events such as droughts."

Today’s report has concluded that most clients increased productive and household assets, which means that as the effect of El Nino passes, clients are positioned to move faster into full recovery. This is true despite the fact that 99% of clients reached have experienced an average of six follow-on shocks such as pests and diseases on crops.

DFID provided £2m worth of returnable funds to the project, funding that was repaid in full on 31st May 2017.

As of June 2017, 97% of all loans provided by the MFIs to rural households in the programme had been repaid in full, and 89% of clients reported that they had already realised some recovery as the negative effects of disaster begin to dissipate.

The project was monitored and evaluated by Technical Assistance to NGOs (TANGO), which conducted rigorous client impact analysis through surveys and data.

Client impact stories from the El Nino project and B-Roll footage of communities and clients impacted by the project are available on request